The labour markets in both Australia and New Zealand closed 2025 in better shape than many economists predicted at the start of the year, though forward-looking indicators suggest 2026 may present more challenges.

Australian employment grew by approximately 240,000 positions during 2025, representing 1.7% growth in total employment. This exceeded early-year forecasts that had projected employment growth around 1.2%. The unemployment rate finished the year at 4.1%, up from 3.9% at the start of 2025 but still historically low.

The participation rate remained elevated at 67.2%, close to record highs. This sustained high participation means more people are in the labour force seeking work, which has allowed employment growth without dramatically tightening labour markets. The relationship between employment growth and wage pressures has shifted compared to previous economic cycles.

Full-time employment growth outpaced part-time growth in 2025, with full-time positions increasing 1.9% compared to 1.3% for part-time roles. This suggests employers are finding the workers they need and are willing to offer full-time positions, which is generally a sign of reasonable labour market health.

Hours worked grew more slowly than headcount employment, increasing just 1.3% for the year. This gap between employment numbers and hours worked indicates either that new jobs involved fewer average hours, or that existing workers reduced their hours. Either way, it suggests the labour input to the economy grew less than the headline employment figures suggest.

Youth unemployment remained elevated relative to overall unemployment, with the 15-24 age cohort experiencing unemployment around 8.5%. This is roughly double the overall unemployment rate and reflects the ongoing challenge young workers face entering the labour market. Part-time and casual employment dominates youth employment, limiting career progression opportunities.

New Zealand’s labour market showed more evident softening than Australia’s. Employment growth was essentially flat for 2025, with the number of filled jobs increasing just 0.3%. The unemployment rate rose from 4.0% at the start of 2025 to 4.6% by November, with December data still pending but expected to show further modest increase.

The participation rate in New Zealand declined slightly to 71.8% from 72.2% at the start of the year. This suggests some workers dropped out of the labour force, possibly due to difficulty finding suitable employment. A declining participation rate during a period of rising unemployment indicates genuine labour market weakening.

Wage growth in Australia moderated during 2025 but remained above inflation. The Wage Price Index increased 3.8% for the year ending September 2025, down from 4.2% in the previous 12 months. This deceleration in wage growth aligns with the slight increase in unemployment and reduced labour market tightness.

New Zealand wage growth showed a similar pattern, with average hourly earnings growth slowing to 4.1% from 4.6% in the previous year. Private sector wage growth slowed more than public sector growth, reflecting tighter conditions in the private economy while public sector wage negotiations continued delivering solid increases.

Industry-level employment patterns showed significant variation. In Australia, healthcare and social assistance continued generating strong employment growth, adding approximately 65,000 positions during 2025. Construction employment declined modestly, down about 12,000 positions as residential construction activity slowed.

Professional services employment in Australia increased by around 35,000 positions, demonstrating continued demand for business services despite subdued economic growth. Retail employment was essentially flat, while hospitality added modest numbers concentrated in quick-service restaurants rather than full-service dining.

New Zealand’s industry pattern was similar, with healthcare driving employment growth while construction and retail shed positions. The government’s public service reduction program resulted in approximately 3,000 fewer public sector positions by year-end, with more reductions planned for early 2026.

Job advertisement data provides leading indicators for employment trends. Australian job advertisements declined 8% during 2025, suggesting employers are becoming more cautious about hiring. However, the level of job ads remains above pre-pandemic averages, indicating the hiring pullback is relative rather than absolute.

New Zealand job advertisements fell more sharply, down 15% for the year. This larger decline aligns with the softer employment outcomes and suggests further labour market cooling in early 2026. Several recruitment firms report that available roles are increasingly going to internal candidates or direct placements rather than being publicly advertised.

Skills shortages persisted in specific occupations throughout 2025 despite broader labour market cooling. Healthcare professionals, particularly nurses and allied health workers, remained in strong demand. Trades including electricians, plumbers, and mechanics continued experiencing shortages. Technology roles, especially in cybersecurity and cloud infrastructure, saw sustained demand.

However, some roles that experienced shortages in 2023-2024 saw conditions ease. Project managers, business analysts, and general administration roles became easier to fill as more candidates became available. The tightest labour markets clearly shifted toward specific technical roles rather than broad categories.

Working with business AI solutions providers, several organisations automated routine tasks during 2025, which affected labour demand in administrative and processing roles while creating new demand for workers who can manage and optimise these systems.

Underemployment remained relatively stable in both countries. The proportion of workers wanting more hours but unable to obtain them sat around 6.5% in Australia and 9.2% in New Zealand. These figures suggest there’s spare capacity in the labour market beyond what unemployment figures alone indicate.

Long-term unemployment (people unemployed for 52+ weeks) increased modestly in both countries during 2025. This is concerning because long-term unemployment tends to be much harder to reverse than short-term unemployment, as workers’ skills atrophy and employer hiring discrimination against the long-term unemployed creates barriers.

The relationship between unemployment and inflation continued evolving in ways that challenge traditional Phillips curve thinking. Unemployment increased modestly in both countries during 2025 while inflation declined substantially, but wage growth remained relatively sticky. This suggests labour market tightness affects wage determination differently than in previous economic cycles.

Looking ahead to 2026, the employment outlook is for continued modest growth in Australia, perhaps 1.0-1.5%, with unemployment drifting up toward 4.5%. New Zealand faces more challenging prospects, with employment possibly contracting marginally and unemployment potentially reaching 5.0-5.5% by end-2026.

Business confidence indicators suggest hiring intentions remain subdued heading into 2026. Companies are maintaining current workforce levels but showing little appetite for expansion. The exceptions are sectors experiencing structural growth—healthcare, aged care, technology—where hiring continues despite broader caution.

What the 2025 labour market demonstrated is remarkable resilience considering the economic growth outcomes. GDP growth was subdued in both countries, yet employment held up reasonably well. This disconnect may reflect companies hoarding labour after the difficulty recruiting during 2021-2023, or it may indicate productivity challenges where more workers are needed to produce the same output. Either way, it’s an unusual pattern worthy of continued attention.